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Uber, Lyft, and the future of transportation in Austin

Business travelers arriving at any major airport in the United States, regardless of the time of day, climate, or even city, will, almost on cue, do the exact same thing: They’ll open Uber or Lyft, looking for a ride before they walk out the door, sometimes even before they get off the plane. These two companies alone accounted for 52 percent of all ground transportation costs (including car rentals) during a three-month period this fall, according to a recent study by Certify, an expense management software tool. In this context, the experience of getting a ride at Austin-Bergstrom International Airport in Austin, Texas, is odd.

Famously unorthodox for countless reasons, the Texas capital recently became the biggest city in the country without Uber or Lyft. After losing a well-publicized referendum and accompanying million-dollar lobbying campaign, the two multi-billion-dollar “transportation network companies” simply shut down and left town this spring, leaving a vacuum that has been filled, at various points, by nearly a dozen startups and small-time competitors clawing for market share. Some of the cars picking up riders at Austin-Bergstrom will have four or five stickers above the dash—a scattering of logos from Ride Austin, zTrip, Get Me, Fasten, Fare, Wingz—highlighting the Wild West nature of the market

In the middle of this confusion, many tech companies saw an unbelievable opening.

Austin’s peculiar e-hailing situation is a Rorschach test, an experiment other cities should pay close attention to, and a battleground over the sharing economy. Will the absence of the two biggest players provide a gestation period for a true competitor, challenging Silicon Valley’s winner-take-all ethos, or is this just a brief anomaly in the tech world’s eventual takeover of urban transportation?

“Austin shows Uber and Lyft can’t use the people as a sledgehammer against politicians,” says Christian Perea, a writer for The Rideshare Guy, a blog and podcast that covers e-hailing news. “Legislators and leaders that are afraid of Uber and Lyft are always told that if these companies leave, they will become backwards, 20th century cities. But the people voted against Uber and Lyft here, and now there are all these new companies providing the same service, often cheaper, and employing more people.”

In just a few short years, using Uber and Lyft has gone from a curiosity to an ingrained reflex, a natural way to navigate any city. The dizzying growth of these e-hailing companies (also known as transportation network companies, or TNCs) speaks to the power of mobile technology, as well as our seemingly benign acceptance of near-total market domination in the digital age. Monopolies and trusts, traditionally bad words, are, in Silicon Valley culture, the way things work, and work best—the end result of scaling, network efficiencies, and venture capital-funded capitalism (see also: Facebook or Airbnb).

Uber and Lyft’s abandonment of the 11th largest city in the country was largely, according to many observers, a sign of the two companies’ hubris. Battle lines were drawn last December, when city councilmembers, led by Councilwoman Ann Kitchen, passed a series of regulations governing TNCs, including a rule that drivers needed to be fingerprinted by a third-party service as a security measure. Trying to balance the city’s prerogative to create its own rules with a desire not to alienate multi-billion-dollar tech firms, Mayor Steve Adler pushed the regulations as a way to work together, a model these companies could use in other cities.

Uber and Lyft didn’t see it that way, and responded immediately and forcefully. While other cities require similar, if not more onerous, regulations—drivers in New York City need to obtain chauffeur licenses, for example—the TNCs feared the precedent of stricter municipal regulations, as well as any rule that would make it more difficult and time-consuming to sign up new drivers (Uber’s own data shows 11 percent of its drivers quit in a month, and half are gone within a year).

The two rivals joined forces to push Proposition 1, a ballot measure that would repeal the new rules, backed by their joint political action committee, Ridesharing Works for Austin, working to sway public opinion. The campaign became the city’s most expensive election to date. Uber and Lyft spent $8 million on a barrage of advertising, or $200 per vote, more than all city council races combined. Even Uber’s new Austin community manager, Trevor Theunissen, said the campaign created “some bad blood” between the company and Austinites. The TNCs were defeated soundly at the polls on May 8.

Dr. Kara Kockelman, an engineering professor at the University of Texas at Austin who studies transportation, believes her city was willing to propose laws and stick with them because the population is highly educated, stubborn, and not willing to be pushed around. The way the TNCs called, harassed, and misled voters struck a chord with the electorate, she says, reflecting the way these companies normally deal with municipalities.

“When you have first-entrance privileges in a market, it lets you muscle in, and that’s what Uber has done,” she says. “They have the phone numbers of all their customers, and they don’t mind using them to try and storm city hall and call elected officials. That’s a much different approach to entering the market than we’ve seen.”

The sore losers wasted no time leaving, adding a geofence to their apps on the morning of May 9 that cut off service in the city, leaving 15,000 drivers out of the loop and a job. Anyone trying to use the app would get a passive-aggressive message—”Due to regulations passed by City Council, Uber is no longer available within Austin city limits. We hope to resume operations under modern ridesharing regulations in the near future.”—with links to contact councilmembers and city hall.

“I think they opened up a Pandora’s box leaving town,” says Joe Deshotel, a communications manager with Ride Austin, a new nonprofit TNC that formed after the big players left town. “We’re Texans, first of all, and nobody is more prideful. And it’s Austin, which just means a double dose of ‘we don’t care.’”

As Deshotel’s boss, Joe Liemandt, described it, Uber built a factory, abandoned it, and left all the machines inside and all the workers behind. New competitors simply needed to flip the switch.

A vote against an out-of-town corporate giant such as Uber feels good, regardless of the intricacies of driver security screening and the future of transportation policy. It feels especially good in a city where a growing and influential tech scene—itself a driver for increased property values and displacement of longtime residents—often feels like the underdog itself, dismissed by the big, brash players in Silicon Valley. At a party for pro-regulation, anti-Prop. 1 forces held at a beer garden the Saturday after the vote, a political consultant declared that “Uber wanted to make an example out of Austin—instead, Austin made an example out of Uber!” The crowd soon broke into chants of “Whose City? Our City!”

The reality on the streets that first weekend after the vote was chaotic. It wasn’t a handoff, it was a pack-up-and-leave. Cabs were overwhelmed and the only TNC, Get Me, a small-time operation that set up shop just before Uber and Lyft left, was swamped. At the same time, drivers who had depended on Uber and Lyft for income were out of work (the city eventually set up a hotline and job fair to help them). In a massive open thread of complaints accompanying an Austin American-Statesman article, user Chaz Pine Cone’s comment summed it up: “A town designed to get you drunk can’t even get you home. That’s a bad friend.”

Austin’s rapid growth over the last decade has created a steady increase in traffic, congestion, and commutes, and a rush for parking spaces downtown. While Kockelman and others don’t think e-hailing is the ultimate solution—”they’re a better form of taxi, and we need better public transit”—it’s being billed as part of the answer by Uber and Lyft.

As the only game in town, Get Me immediately saw a spike in riders and drivers. But it wasn’t alone for long. Within a few weeks, Fare joined the free-for-all from Phoenix, then Fasten from Boston. ZTrip and many others soon followed. The Arcade City Facebook group quickly coalesced, letting members swap rides via social media posts (the service, technically illegal since it’s operating a ridesharing service without city authority, is now trying to reposition itself as Bitcoin-friendly transportation). An abandoned market had suddenly become a petri dish of proposed services and new ideas, with more competition than any other city in the country.

No company seems to define the Wild West nature of the situation more than Ride Austin, a nonprofit e-hailing company and app that was cobbled together from scratch by the Austin tech scene in a series of frantic weekly sprints. Deshotel provides a dizzying timeline: Uber and Lyft left town on May 9, he was hired on the 18th, the company was announced on the 23rd, and then launched June 15.

“Our vision was to use all what people had left here to our advantage, and come to the rescue for Austin for ridesharing,” he says. “You heard all this hubbub coming from Silicon Valley, ‘You can’t make it as a tech hub if you don’t have Uber and Lyft.’”

Ride Austin sees itself as more than just a scrappy upstart facing off against the Silicon Valley behemoths. It’s a new model, a nonprofit that could be replicated elsewhere. If open-source ridesharing systems can work, sharing data and creating a new model at a time when many cash-strapped municipalities see the expansion of Uber and Lyft as a given, that gives back power to the cities.

By the summer, nearly a dozen apps were jockeying for riders, drivers, and a big enough network to overwhelm the competition, all while struggling with bugs and a steep learning curve. Perea went to Austin in late May to test the apps, and though he found plenty of problems, and a wide gulf between the upstarts and Uber, the gap was closing. Wait times for rides had been cut to an average of seven minutes (Uber and Lyft averaged three). The playing field was suddenly wide open and exciting.

Roughly six months into Austin’s e-hailing experiment, the market has started to sort itself out. The competing services have roughly 9,000 drivers signed up, and the 10 licensed services all met an August 1 benchmark to have at least half their drivers fingerprinted, according to the Austin Transportation Department. According to estimates from multiple sources, Fasten, Fare, and Ride Austin are leading the pack in terms of passenger usage (the companies wouldn’t release ridership data).

“Drivers tell us this is an oasis, they don’t want Uber and Lyft back,” says Deshotel. “There’s no secret sauce. If you have a solid app and listen to your consumers, it works.”

According to Perea, drivers who felt marginalized and ignored by Uber and Lyft saw the May vote as a great new hope, a chance to earn more and get more respect from their new bosses. Ride Austin charges just $0.99 a mile, the lowest cost for riders, and what they claim leaves the highest percentage for drivers (they now allow riders to round up to the nearest dollar and donate to charity). Fasten, the Boston-based app that made the jump to Austin, takes a flat $0.99 per ride from drivers, giving them a much higher cut of the total cost of a ride.

“This is a multi-million-dollar industry built atop the drivers, they were getting no respect,” says Kirill Evdakov, a founder of Fasten. “The drivers are the actual service providers. How can they be treated so horribly? Our pitch to the drivers is, ‘You make more, the passengers pay less.’ That’s how we compete with multi-billion-dollar companies. It’s technology serving people, not people serving technology, like Uber.”

At a party for pro-regulation, anti-Prop 1 forces held at a beer garden the Saturday after the vote, a political consultant declared that “Uber wanted to make an example out of Austin—instead, Austin made an example out of Uber!” The crowd soon broke into chants of “Whose City? Our City!”

Results, however, haven’t quite matched these utopian visions.

Jeffrey Lopez, 33, started driving for e-hailing companies a little more than a year ago, after he moved from California to take care of his mother during her cancer treatments. He was left without a backup when Uber left, but he’d already been disappointed with the service, as the combination of a steady drop in the price-per-mile and the introduction of the uberPOOL ridesharing service made it an uphill struggle to make a living (“It was honestly killing the drivers”).

He now drives for Fasten and says the service not only pays him more, but has an incentive system geared towards full-time drivers. Financially it makes much better sense than Uber or Lyft. He wants to believe that riders feel the same way.

Anthony Nguyen, a software consultant who lives in suburban Round Rock and drives part-time for Get Me and Wingz to earn extra income, isn’t so sure. The new apps have come a long way, but they are far from perfect, and ultimately the battle will be about public opinion and convenience.

“From a selfish standpoint, as a rider, I want Uber back,” he says. “It’s cheaper, the app works better, and you can always get a ride. As a driver, I don’t want them back, they pay less.”

“The markets worked as the markets are supposed to work,” says Mayor Adler. “Innovation and entrepreneurship are respected. It’s not as many drivers as Uber and Lyft, and there are spots where the wait is longer, but these companies are getting better at what they do.”

But the honeymoon from Uber and Lyft may be coming to an end. When the Texas state legislature resumes meeting in Austin this January, a bill to standardize e-hailing regulations statewide, overruling Austin’s laws, will be on the agenda, with Silicon Valley lobbying power pushing it forward. Two state lawmakers already introduced proposals last month, with one, Senator Don Huffines, wondering if the ride-for-hire industry “should be regulated in the first place.” The conservative Texas Legislature has a history of singling out Austin for some of its more anomalous, liberal policies, while Uber and Lyft, formerly startups themselves, now appear more than eager to crush newer, smaller companies.

Uber has learned its lessons from the Prop. 1 battle, says Theunissen, and needs to be more engaged with the community when it returns. This year’s fight became about the tone and tenor of the campaign, he says, not about the real policy in question. Uber is also positioning itself as a savior for a booming city with serious traffic and congestion problems, a role these new players can’t possibly fill, and dangling the possibility of automated vehicles, a technology none of the small-time TNCs can match. It ends up sounding a bit like a veiled threat: Let us back or lose out.

“Our carpool system, our wheelchair access program, you haven’t seen those from the other TNCs,” Theunissen says. “Go on Twitter and search ‘Austin and Uber’ and you’ll see the outcry about the city not having that option.”

If open-source ridesharing systems can work, sharing data and creating a new model at a time when many cash-strapped municipalities see the expansion of Uber and Lyft as a given, that gives back power to the cities.

Uber- and Lyft-friendly legislation has already been passed by 35 states, according to Theunissen. Many think it’s a matter of if, in Texas, not when, and Mayor Adler, sticking to the cautious middle ground, says he’ll comply with any new state law, but hopes that it allows for some measure of local control.

Perea sees it as inevitable, if only because Uber and Lyft can’t forfeit a key market and don’t want to lose their air of inevitability. The companies have, to differing degrees, engaged in brinkmanship with other cities, such as Buffalo, New York, Oklahoma City, and Broward County in Florida. They usually win (though Uber did just agree to a streamlined version of driver fingerprinting in Houston).

The longer the startups have to develop and catch up, the tougher the fight for market share may be (many expect that any Texas law, even if it passed early in the upcoming legislative session, wouldn’t go into effect until this fall). The new TNCs concede Uber and Lyft would eat into their market share, but remain defiant that they could survive, even prosper.

“We’re not in the business of competing with Uber,” says Evdakov. “We’re in the business of moving people. We can be lean and efficient, we don’t need to have it all.”

These e-hailing companies are now locked in a race, and the stakes are higher than simply breaking through a monopoly. Autonomous drivers like the ones Uber is testing in Pittsburgh don’t need fingerprints. While the company already has an immense cash reserve and a gigantic first-mover advantage, getting the leap on driverless cars might put them permanently ahead of the competition.

But, in their bid to capture market share, it appears these new competitors are starting to mimic some of the big boys’ tricks, such as altering driver pay. Rates have risen for riders, and Fasten even allows for a “boost,” a feature that lets you pay extra to jump ahead of the queue during busy periods. Will they eventually start chipping into driver take-home pay?

“These other TNC apps said they wouldn’t do it the Uber way, and they’re slowly coming around to see how you need to do things the Uber way,” says Nguyen. “I think you’ll eventually see them fight the fingerprinting requirement, because they’ll realize they won’t be able to recruit enough drivers.”

The true test of this model will be when that prospective statewide rule governing rideshare comes into effect, perhaps just six to 12 months from now. Will these startups get crushed by the companies they claim to be better versions of, succeed on their own terms, or slowly become more and more like the big players?

“They aren’t going to be destroyed,” says Perea. “The current winners have gained a foothold, they’re starting to gain those network effects. We’ll see what happens when Uber and Lyft return.”